Tag: retail

Reinventing point of sale

Cloud and mobile devices are changing retail systems.

One of the banes of running a business computer support organisation were cash registers.

Retail Point Of Sale (POS) systems were almost always arcane, clunky and difficult to maintain, at PC Rescue we dreaded a call from a shop, pub or hairdresser having problems with their registers.

Frequently this was by design, the POS system supplier would try to lock in their business customers into expensive support contracts.

By making it difficult for anybody without intimate knowledge of the product to actually do anything with it, the retailer was stuck having to hire overpriced custom support.

To make things worse, many of the POS systems ran on outdated hardware which offered the suppliers another opportunity to hit their customers (victims?) with high support costs.

Since the iPad was released, I’ve been waiting for an application using cloud services for a back end that challenges the existing Point of Sale systems and today US online payments system Square has announced their Square Register app.

While only available in the US, Square has been setting the pace for physical payment systems like taxi fares and coffees using online technologies so it’s hardly surprising they are leading this push.

The iPad as a cash register is a logical step for the device and tied in with a robust Point Of Sales platform behind a simple to use app, it will probably make a huge dent in the point of sale market.

It may be the Square service won’t be the point of sale leader – Square is more a payments service than retail platform – which means this field is way open for some savvy operators.

One of the concerns with the Square service, and any iPad based application, is the spectre of vendor lock-in. Being fixed on the iOS platform means there is a risk of being held hostage to Apple’s business plans, also being locked into Square’s payment systems may not be the best choice for many merchants.

The payments and point of sale industry is another that’s being radically changed by mobile devices coupled with cloud computing. It’s not a time for incumbents to rest on their laurels.

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Why we should give Gerry Harvey a break

Big retail’s problems could be ours as well

Gerry Harvey’s been having a bad year. This time last year he was moaning about the Internet stealing his business and now his profits are down.

In Mark Fletcher’s Newsagency Blog, Gerry gets a serve for dragging the entire retail channel down.

Mark quite rightly points out that Gerry’s problems are of his own making and his chain’s difficulties aren’t necessarily those of the rest of the industry or even shared by individual franchises within the Harvey Norman group.

While I’ve been as critical of Gerry as anybody else, maybe it’s time to give him a break.

It’s worth considering how Gerry made his billions. When he started in business in the late 1950s, it was tough for the average person to get credit. At best working families could get something put aside at the local store or enter into an Encyclopedia Britannica style subscription plan.

Gerry and his generation of retailers changed that. They made credit available to the masses who could suddenly afford to buy household appliances and electrical goods without years of savings.

I remember my parents buying things from Norman Ross, Waltons or the ACTU’s Burke Street store (Bob Hawke once stepped on my mum’s foot while she was shopping for a sofe) because working class people could get credit there.

Gerry was at the beginning of the consumer revolution that defined the second half of the Twentieth Century.

In the late 1980s financial deregulation changed the game again and Gerry’s business took off as credit became even easier to get with new providers entering the market. First we saw three month interest free offers and by the mid-2000s six year interest free deals were available.

These deals were so good that Harvey Norman franchisees often made more money selling the credit deals than on the actually product that the ‘no interest’ loan had been taken out to buy.

For Gerry, this was insanely lucrative as his business was able to clip the ticket at almost every level of the retail and distribution chain while moving much of the risk and capital cost onto franchisees and landlords hungry for high traffic anchor tenants.

In 2008 this entire model changed as the credit boom came to a crashing halt and consumer spending with it.

Business models based on cheap credit now have to find something else that works and this is what Gerry Harvey is now struggling with.

To complicate matters, the Internet has changed the distribution model that worked for Harvey Norman and other bricks and mortar retailers. All of them are now having to make a major shift in the sales cultures.

Adapting to this new world is tough for everybody and we should have some sympathy for Gerry Harvey as our businesses and jobs are being affected by exactly the same forces.

How Gerry adapts, or doesn’t, could be a bellwether for our own industries.

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Omni Channel Buzzwords

Can nice phrases save a declining business?

Retailer entrepreneur Gerry Harvey yesterday unveiled his strategy to arrest the declines in his home goods chain’s sales.

One of the key points in his investor presentation was “continued investment in strengthening our Omni channel strategy”.

When asked exactly what an “omni channel strategy” is, Gerry reportedly admitted that until last week he had no idea what it was.

For an entrepreneur whose business model is suffering badly in the face of changed markets, Gerry seems to be remarkably flippant about how he and his team are going to react to the challenges.

Gerry lack of understanding is bad news for his team, because appears there is no management commitment to the major changes Harvey Norman, and many other incumbent retailers, are going to have to make in order to recover the sales and margins they have long been used to.

The “omni channel strategy” is an interesting beast, which was described by Myers CEO Bernie Brooks last April on ABC’s Inside Business.

We’re building our own omni-channel approach, which will include everything from kiosks in store right the way through to being able to provide very good office online up to 250,000 items, free delivery.

What’s interesting with the retailers’ talk of “omni-channel” is the talk of service. Both Myer and Harvey Norman claim customer service is the centre of their strategy but their emphasis in the past has been to reduce customer service.

The reduced emphasis on service has been part of the decline of the both chains; Harvey Norman could get away while consumers were happy committing to “no-interest for 72 months” finance plans, while Myer steadily declined as their key difference with discount chains like K-Mart and Target was eroded.

Hopefully both Gerry Harvey and Bernie Brooks will get their omni channel strategy strategies working, though it will be interesting whether both can get their management teams to re-discover the meaning of “customer service”.

Without getting the service right, their “omni channel strategies” will just appear to be another management buzzword in a declining business.

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Why Dick Smith is wrong about overseas buyers

Foreign investors are desperately needed in Australian retail

Last week’s announcement that Woolworths will sell their Dick Smith chain of electronics stores wasn’t surprising and neither was the reaction of the chain’s founder to the idea of the business being sold to a foreign buyer.

For all his legitimate concerns about Woolworth’s growth model, Dick Smith is wrong about the sale of the stores. It’s almost essential for Australian consumers and business that the chain is sold to a foreign retailer.

When Dick sold his business to Woolworths in the early 1980s it was the beginning of a long consolidation process across Australian industry that now sees most business sectors dominated by duopolies or – at best – three or four incumbents.

In retail, the Coles and Woolworths duopoly dominates groceries, liquor and petrol. The power of these companies was illustrated yesterday with Coles’ announcement of price cuts to various greengrocery lines.

Having a new player enter the market is always an improvement; in neighbourhoods where foreign retailers like Costco and Aldi operate or where a keen, smaller operator decides to compete with the big boys the response is always better prices and service.

More importantly bringing in overseas owners will bring in fresh thinking and new ideas. New blood in the retail sector may even stem the brain drain where many young, innovative future business leaders are forced overseas because of the limited opportunities in the incumbent duopolies.

Where Dick is right is that the electronics retail business is dying as fat profits in the sector are a distant memory in what is now a tight margin, fast moving consumer goods industry. To make things worse, consumer electronics aren’t even fast moving in the post GFC economy.

Adding to the retailer’s pain the collapse in margins has happened at the same time commercial rents have risen dramatically with Sydney now being cited alongside Hong Kong, London and New York as the world’s costliest shopping strips.

While suburban shopping centres don’t have the same rents as the Pitt or Bourke Street Malls, they still have risen dramatically in the last decade, catching all retailers in a vice between rising costs and falling margins.

In order to maintain profits, training and staff development have been slashed. Once up a time, a customer would go to a Dick Smith or Harvey Norman store to get informed advice on the best gadget, those days are also long gone as poorly trained staff fight to sell the products with the best commissions.

Owners of the stores have made it harder to recruit and train motivated staff when employer consider hospitality and retail jobs to be temporary, low esteem positions with few prospects.

This deskilling isn’t just an issue for the retail industry – it’s something we’ve seen across the Australian economy in the last thirty years. As training and skills development has been seen as an unnecessary business cost.

Tourism Australia chairman Geoff Dixon’s recent comments about the Australian tourist industry having to accept being a high cost destination is a symptom of this disconnect. The local tourism industry has no chance of moving up the value chain when there is no service culture among staff and no long term management vision to develop one.

It would be unfair to just pick on any one individual or business for these problems. We have a structural problem in the Australian economy that’s fuelled by entrenched beliefs and habits of a stagnant senior managerial class.

We desperately need new people and ideas in Australian management to shake up the staid duopolies and oligopolies we’ve allowed to develop in the last three decades, that’s why Dick Smith is wrong to say a foreign owner for the electronics chain he founded would be bad for the country.

Image courtesy of Icelandit on SXC.hu

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The evolving business

How a fading electronics chain illustrates an evoluting industry

This story originally appeared in Smart Company on February 2, 2012

Woolworths’ announcement earlier this week they are exiting the Dick Smith Electronics business ends an interesting study in how a business can evolve as their industry changes.

In the thirty years since Dick Smith sold a stake in his business to Woolworths – a few years later they bought out the rest of Dick’s equity – the electronics retail business has changed immensely.

At the beginning of the 1980s, the CB radio boom that had fuelled the growth of stores like Dick Smith Electronics was coming to an end, as was the hobbyist industry which supplied those building their own computers and other electronic devices.

In the US, the hobbyist industry included people like Paul Allen and Bill Gates – who founded Microsoft – along with Steve Wozniak and Steve Jobs, the founders of Apple Computers. Both of these companies had a lot to do with the growth of the DSE business later.

While those two industries were fading at the time Woolies bought the chain, the availability of consumer electronics was taking off as Video Cassette Recorders, car hi-fi and, later, CD players started entering the market.

At the time these were high margin items so the transition from a hobbyist store to consumer electronics chain was a lucrative move for Woolworths – something helped by Dick Smith’s penchant for publicity even though he was no longer with the store.

Eventually the steam ran out of the early wave of consumer electronics but in the mid 1990s the PC revolution took off which allowed Dick Smith Electronics to diversify again.

As personal computers were taking off, so too did the next wave of consumer technology, particularly in mobile phones, games and big screen TVs which initially had big, fat margins.

Over time, these margins began to fade as prices dropped but for Woolworths this wasn’t a problem as the beginning of the 2000s saw an explosion of easy consumer credit, allowing stores to move more products to willing consumers.

Very quickly, the consumer electronics industry became more like the low margin, high volume FMCG – Fast Moving Consumer Goods – sector that is Woolworths’ core business.

The global financial crisis heralded the end of the credit boom and now cautious, credit shy householders meant consumer electronics were no longer fast moving.

Dick Smith Electronics aren’t the only chain affected by this, Harvey Norman are suffering the same way and in the United States Best Buy and Radio Shack are in desperate straits for the same reasons.

Making things tougher for Australian retailers are store rents that are among the highest in the world. Woolworths’ decision to shut down a third of the Dick Smith outlets is a wise move as many of those stores probably have lease renewals pending.

Woolworths has done well from Dick Smith Electronics over a quarter century as the consumer electronics industry has evolved. Their story is a great example of how a business can adapt in a changing sector.

Hopefully Woolies will find a motivated buyer – one hopes not one of the clueless private equity asset strippers that have destroyed so many other retail icons in recent years.

Perhaps we’ll see a buyer who can steer the business well into the phase of consumer electronics retailing with some innovative and fresh thinking that the Australian retail sector needs right now.

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The pay day

How does a local news agent exit their business?

Last Sunday Mark Fletcher celebrated his 10,000th post at the Australian Newsagency Blog. In seven years of posting that’s an impressive achievement for someone running both a retail store and a software company.

In his landmark post, Mark looked at the major issues he’s covered on his blog over the last few year and one stands out as the biggest – the payoff for newsagency owners when they sell their businesses.

The failure of many newsagents to manage their businesses for day to day profit. Too many newsagents expect their pay day when they sell and do not realise that their pay day is today, tomorrow and next week … and that this determines what they will receive when they sell.

For Australian newsagencies the news is bad; their established industry is struggling in the face of technological change and regulatory changes – both of which are other points Mark raises – but more importantly the buying and selling businesses in all sectors is undergoing a fundamental economic shift.

Lifestyle Businesses

The underlying idea is that these businesses are what Steve Blank calls “lifestyle businesses”; proprietors buy them to provide an income for their families.

For these “lifestyle businesses” to have a resale value another family is has to raise the funds to purchase the enterprise.

Therein lies the problem, most purchases of businesses are financed by bank loans secured against property.

Late baby boomers and Generation Xers – those born between 1955 and 1970 – are the obvious buyers of these businesses and they don’t have access to the same equity as their parents.

The situation is even worse for those generations following whose high education debts mean an even later entry into the property market and even less equity available should they want to buy these businesses.

For sellers, this means is buyers can’t pay the prices retiring business owners need as their nest egg to support them through twenty or thirty years of bowling or travelling in their later years.

This inter generational mismatch isn’t just restricted to Australian newsagents; it’s a problem around the Western world for business owners whose exit strategy involves selling the business as a going concern for a substantial amount.

Cash poor buyers

As we reach the end of the late 20th Century credit boom, the money isn’t there for people to pay the sort of sums required by existing local business owners to retire in comfort. Even if the banks were prepared to lend the sum required, the buyer’s underlying assets can’t secure the loans and, most importantly, the cashflows aren’t there.

In an Australian newsagent context much of the cashflow has changed because of deregulation and new competition but on the bigger scale changing consumption patterns at the end of the 20th Century debt binge coupled with aging populations and restricted credit are changing the economics of family owned, small local businesses.

For the current owners of these small businesses, it means the pay day has to be today as it won’t be there tomorrow.

The danger is how many will follow the example of the large corporations who find themselves in a similar situation and respond by excessively cutting costs or chronically under-investing which is what has crippled big store retailing across the US, Australia and the UK.

Mark’s constantly pointed out that Australian newsagents have to reinvent themselves, as he celebrates seven years of blogging and 10,000th blog post it’s probably worthwhile considering how many, like the rest of us, will be working in our businesses far longer than we originally expected.

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Channel Conflict

How does a small business compete with a big supplier?

I first became aware of the term “Channel Conflict” in the late 1990s when running an IT business that was a Microsoft reseller.

A channel conflict is where a supplier starts competing with the merchants they supply, or promoting one group of their customers against another. A good example is Google’s Travel Search that is upsetting many of Google’s own advertising customers.

As a local IT support business my channel conflict came from Microsoft advertising their own direct sales and consulting services as well as promoting their premium “gold” partners.

Conflict with such a big channel partner was frustrating and unavoidable given Microsoft’s position in the market. We couldn’t do anything about it except work towards Gold Partner status and differentiate ourselves from the competitors who had the advantages of Microsoft’s marketing.

The web – in particular online commerce – is increasing these channel conflicts as the Internet sweeps away existing middlemen and allows others to develop.

A good example of how e-commerce is changing things was a tweet from Australian business broadcaster Brooke Corte where she found a swimsuits retailer’s prices were 40% cheaper through her shopping mall’s website.

Essentially the swimsuit retailer is being undercut by their own landlord’s e-commerce service – an incredibly difficult channel conflict.

For the retailer, they are up against Westfield; a big, multinational player with substantial market share and deep pockets who also happens to be their landlord in many high traffic locations.

It isn’t all bad news for the small retailer facing a channel conflict; Seth Godin has a good perspective of what happens when the big boys decide to play in your sandpit.

Seth’s situation was in 2008 Google launched a competitor – Knol – to his Squidoo businesses. This appeared to be the death knell, or Knol, for Squidoo.

Three years later, Google killed Knol.

In many cases channel conflict turns out not to be such a problem for the specialist retailer – big companies like Google, Microsoft and Westfield are good at what they do and dealing with the minutiae of retailing is not necessarily one of them.

Small businesses also have an advantage in the very online tools that are disrupting retail and other fields. TechCrunch recently looked at some of the mobile and price comparison tools and how local retailers can use them to compete with Amazon.

Coupling technology with service and focus – two factors that large companies usually struggle with – can define the battlefield for smaller businesses struggling with channel conflict.

As declining margins and new technologies tempt big suppliers into dabbling in areas they previously avoided channel conflict is only going to increase, though for the creative and confident businesses it isn’t the threat it first seems to be.

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